Question

How does GAAP standardize accounting records across companies? Why are private businesses not required to follow GAAP? Which issues may have occurred before rules for accounting documentation were standardized? Who maintains GAAP rules? Why is this separate from the responsibilities of government? What is the difference between preparing reports without GAAP? What are some issues that GAAP does not address?

Answer 1

GAAP - Generally accepted Accounting Principles are used to prepare general purpose financial statement.

Standardisation of Accounting records happen because of applying GAAPs while preparing it. GAAPs are Guidelines for companies. The main purpose of financial shtatements are providing information to stakeholders or say to public because public companies are concerned here.When the companies follow these guidelines the accounting records are comparable and understandable for a rationale stakeholder. Because of applying GAAPS, the financial information is understandable and comparable if companies use different principles we cannot compare the FS and even a user will not be able to understand sometimes. So the GAAPs help users of FS in decision making.Thus GAAPs standardize The Accounting Records.

The GAAPS were not mandated for private businesses because they are rarely concern to public, The focus of private companies are on growth of company whereas public sector focuses on overall growth of society. The financial information users of a private company are owners, resources providers mostly means limited. Which doesn’t require the integrity of financial information with other companies. Although private companies may apply GAAPS but most of ignore because it’s time consuming and also expenses on it is not worth for them.

The issues may be the different types of industry, cost to regulate, the types of users of accounting documentation, the methods of business etc.

The U.S. Financial Accounting Standard Board maintains GAAPS rules.